Clients who know their wealth manager prioritizes client service tend to be very happy. And when a firm has a roster full of happy clients, the numbers tend to take care of themselves over the long run.
Strategic Mergers—A Better Solution
Industry pundits who would have RIA owners believe their only real choices are to keep bootstrapping growth on their own or sell to private equity masters are dead wrong.
There is a third way, and it involves identifying and pursuing a strategic merger with another RIA firm whose vision is aligned with yours, who shares a commitment to being 100% employee owned and who is willing to share a seat at the table with you. Those firms are out there.
When evaluating a strategic merger with a like-minded and strategically complementary RIA, it comes down to the following four key details:
1. Defining what successful growth and reinvestment in the merged firm looks like. The best mergers are the deals in which each of the partner firms are crystal clear from day one on what the shared future goals are and the areas of the business where further investment should be prioritized.
2. Ensuring the transaction encompasses a healthy balance of cash and equity in the combined entity. A strategic merger with a like-minded RIA can be compelling if the combined entity offers a meaningful level of true equity in the business for all parties involved.
3. Room to expand equity ownership to other employees who earn it. The equity compensation structure must be capacious enough to ownership opportunities for other professionals who are willing to step up to the plate in the future.
4. Commitment to a truly inclusive and shared leadership team between your firm and the merger partner firm. Only entertain strategic mergers that assume you and your key leaders will be part of the combined entity’s senior management team going forward.
At the end of the day, when contemplating how to grow via M&A opportunities, RIA owners owe it to themselves, their employees and their clients to seek growth-focused deals that focus on creating economic upside driven by client service enhancements and a shared vision for success, versus financial engineering.
Anne Marie Stonich and Josh Harris are co-founders and managing directors of Paracle Advisors, an RIA firm with $1.4 billion in client assets. This May, Paracle Advisors announced a merger of equals with Coldstream Wealth Management, an RIA firm with $4.3 billion in client assets in a transaction expected to close later this summer.